Retail FDI 'flip-flop' spooks FII investors: Expert

James Fontanella-Khan of Financial Times spoke to CNBC-TV18 about the outlook on businesses in India after the bill on FDI in multi-brand retail got postponed.

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Retail FDI flip-flop spooks FII investors: Expert

James Fontanella-Khan of Financial Times spoke to CNBC-TV18 about the outlook on businesses in India after the bill on FDI in multi-brand retail got postponed.

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James Fontanella-Khan of Financial Times spoke to CNBC-TV18 about the outlook on businesses in India after the bill on FDI in multi-brand retail got postponed. He says that the issue goes beyond just FDI in retail, and investors perceive it as uncertainty injected into the economy.

"If investors are not given a stable platform and clear directions of where the policies are going in this country, they will go elsewhere to invest. There are many other places around the world to invest in, and nobody wants to put money where the sky is cloudy," he says.

According to him, what is even more worrisome is, FDI in retail might not happen until the elections in 2014 and 'even then, BJP which is considered pro-business too cannot guarantee anything since they are against FDI in a crucial sector.'

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: How big a setback has been the postponement of FDI in multi brand retail as far as India’s perception overseas goes?

A: Investors are disappointed. We spoke to Tesco yesterday and they said this was a missed opportunity. The biggest problem here is not just about FDI not being allowed in the retail sector, it’s like the whole flip-flop, the whole uncertainty that has been injected into the Indian economy and investors hate instability, they hate uncertainty, they want things to be straight. So the lack of clarity of where is the country going, the policies the government is trying to push is what is disconcerting investors the most, and this will not only effect retail, it will effect all other sectors of the economy. The government needs to get its act together. What is also slightly worrying is this might not even happen up to 2014 before the election, and the BJP as they are positioned which is meant to be the pro-business party, they cannot guarantee anything either because they have proved to be quite against foreign investment in a key sector.

Q: How would you sum up foreign investors’ sentiment towards India right now?

A: They are going to start to perceive India as an even riskier place to invest. Let’s say the government now removes the suspension they passed, they are going to vote down FDI multi-brand retail… they won’t be washing into it anytime because they are concerned that maybe in a year’s time, Congress loses election, BJP comes in and the policy might not stand again. They might then have to leave the country.

On 100% single brand retail, a week after announcement, IKEA was to explain its plans for the country, but they never did that! They are not going to make any investment until things are actually going in a very clear direction, they get some clear guarantees from the government and from opposition parties. They don’t want to deal with 10-15 different stakeholders. They want to just talk with one guy, tell them you can come in, get your land, invest, build your store and then go on with it.

As I said, this is not only going to effect retail, this is going to effect companies across the board. There is too much instability around here, there are other places to go and invest, and if you don’t get them the stability they will just simply go elsewhere.

Q: You are saying that despite 100% being allowed there, it’s unlikely that we will see a gush of dollars come in over the next few months?

A: IKEA really wanted to move into India and Indian consumers would like to see IKEA in the market. But they just want to make sure they are not getting into something too hastily because they are very concerned if something goes wrong, and they invest x million or billion dollars, they don’t want to find themselves being kicked out because BJP comes back to power and they say we don’t want single brand retail.

So I think they will take their time, they were here about two weeks ago, they meant to announce their expansion plans but they said, let’s fly back to Sweden, let things cool down a bit, see what happens.

Everybody wants to be in India, this is a fantastic growing economy, but you need to have some simple basic rules; rules are essential for businesses to operate.

Even Jim O’Neil, he was at an investor conference in London and he said the Indian government cannot say one thing and then say sorry we were joking and scrap decision after two weeks. It’s just not been acceptable, and he also said that he was very disappointed by postponement in attracting FDI and this is a key problem.